Small businesses must prepare, understand options
Although many small businesses are in their best financial position in three years, there are still uncertainties impacting decision-makers today. The relative uncertainty caused by rate hikes and the nominal impact of tax reform is something we encounter every day while speaking with business owners about their plans for expansion.
While there may be some sticker shock due to rate increases, it’s promising to hear that most businesses feel well positioned to expand.
The government shutdown had a significant impact on businesses – the halt on Small Business Administration loans and inability to get inspections and approvals required by other federal entities. But many owners came away with a new appreciation for being prepared.
This reality check, coupled with concerns about the pace at which rates are increasing, means businesses need to double down on preparation, planning and understanding their options.
If you’re a business owner looking to expand, the need to ask yourself: “What does expansion mean to my business?” Workforce, real estate, equipment and inventories are big focus areas for Greater Pittsburgh’s small businesses this year. It’s a tight labor market, and companies are making investments in their benefits and compensation programs to attract and keep employees.
Real estate also is being used to help win talent wars, with some companies leveraging amenities of the workspace as an added benefit. This is typically a less-prevalent driver for commercial real estate investments, though, and most businesses also are looking to move to bigger locations or adding sites to meet market demands and capture new opportunities.
And to support an increased pace of growth, investments in upgrading or adding equipment are still driving much of the demand for credit today. The average person probably has no idea what his or her doctor pays for updated equipment. A medical practice looking to upgrade its baby scales could be looking at a pricetag of $10,000 for one scale.
Keep in mind, expansion isn’t limited to real estate, equipment and inventories or workforce. If you’re looking to add scale to your business, maybe it’s time to consider a merger or an acquisition.
We’ve seen a lot of consolidation of pediatric practices in the Pittsburgh area, as owners age and prepare for the future of their business, or seek to add scale to remain competitive today. I recently spoke with a doctor whose solo practice served 4,800 patients. Expansion for this practice may mean hiring another doctor, or it may mean merging with another practice.
Whatever type of expansion you pursue, the time is ripe for it here. Our renowned universities are producing top talent and serving as an incubator for emerging industries, such as robotics.
Pittsburgh has become a hotbed for robotics and AI companies. Robotics Row was home to more than 20 technology companies, including Argo AI, HEBI Robotics, RE2 Robotics and several venture capital firms.
Much of what these companies produce feeds into the future of two of Pittsburgh’s other thriving industries, manufacturing and health care. These three industries are intersecting to propel each other and continue to fuel our economy and create jobs. I fully expect the region’s small businesses to be leading the way in these sectors for years.
Access to credit is critical for continued expansion, but don’t pursue options blindly. Make sure you’re using the right loan product for your needs. Think about your needs at different stages. What money do I need for today? What will I need in the next year or the next three years?
Business owners should consult a specialist to develop a long-term credit plan. When you’re clear on the time horizons and how you plan to put capital to work, you’re empowered to make better decisions about which levers to use for each situation.
Now’s the time to get into the game. Just make sure you’re using the right loan product for your needs. Yes, a 6 to 9 percent interest rate on a loan is high compared with the 3 or 4 percent rate you may have gotten five to 10 years ago, but keep in mind, it’s all relative and today’s rates are still attractive for businesses.
When the next rate hike comes, you may regret sitting on the sidelines now.
Chris Eberlein is a vice president and the Pittsburgh market manager for Citizens Bank Business Banking.
To submit columns on financial planning or investing, email Rick Shrum at rshrum@observer-reporter.com.